"The Start-up's Secret Weapon: Contests" or "How to Turn $100K into $12,000,000"

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Tobi Lutke, CEO of Shopify. How did they turn a $100,000 prize into $12,000,000 in transactions?

In the world of magazine articles, one of my all-time favorite headlines is “Anything You Can Do, I Can Do Meta” from the MIT Technology Review, a feature about billionaire programmer, Charles Simonyi. Charles designed Microsoft Office and is outstanding at looking at programming as different layers of abstraction.

How can we raise our perspective from 5,000 feet to 30,000 feet to learn a few things? This post will do that with competitions.

Today, Shopify, a start-up I have advised since 2009, announced the winners of their Build-a-Business Competition, featuring a grand prize of $100,000 cash. Winners were determined by combining their two highest-revenue months in an 8-month competition window.

I want this post to show two things, and the second is where meta comes in:

1) How the competition winners won and key lessons learned in taking their products from ideas to profitability. This includes manufacturing, marketing, PR, and just about everything in between. I’ve looked at these types of lessons before.

2) How Shopify has used these competitions to build their own business several-fold and cross the chasm from early-adopter to mainstream. This is something I’ve never written about…

To avoid any linguistic nitpicking, I’m using the definition of “meta-” from Wikipedia:

Meta- (from Greek: ???? = “after”, “beyond”, “adjacent”, “self”), is a prefix used in English (and other Greek-owing languages) to indicate a concept which is an abstraction from another concept, used to complete or add to the latter.

Let’s address creating competitions first and winning them second.

This post might have a few typos in it, as I’m at the hospital with family. If you like, please point them out in the comments and I’ll do my best to fix them.

Creating a Competition Yourself

Let’s look at the stats first, and then lessons learned.

THE FIRST COMPETITION

Tobi, Shopify’s CEO, and I hatched plans for the first Build-a-Business competition over the phone in 2009. It was announced in December 2009 on my blog, and–as you can see from the afterword and scrambling in the initial post, which I suggest you read–it wasn’t perfect.

The imperfection didn’t matter, as nothing is perfect the first time, especially if you’re ambitious. The protocol is: ready, fire, aim. But when the competition wrapped up, despite the bumps, Shopify had made leaps across the board:

– From a revenue standpoint (for Shopify), they’d killed it, right alongside their competitors. Here are some stats:

Revenue PER HOUR for the duration of the contest (180 days): $696.38
Total number of people competing: 1,819
Total number of orders placed: 66,503

– From a media standpoint, they’d jumped from niche to mainstream, including The New York Times.

– Larger, more recognizable brands, like GE and Angry Birds, suddenly chose Shopify as their e-commerce platform, even though these companies could afford custom solutions.

– Shortly after the competition closed, Shopify was able to secure $22 million in Series A and B funding from world-class firms like Bessemer Venture Partners, FirstMark Capital, Felicis Ventures (Hi, Aydin!), and Georgian Partners. These funds were then used to accelerate expansion, as Shopify was already profitable. Funding isn’t just for floating the boat, keep in mind; it can be used to add rocket fuel to a successful launch.

– This leads us to 2012. In February, Shopify was named one of Fast Company Magazine’s top 10 most innovative retail companies in the world.

THE SECOND COMPETITION AND LESSONS LEARNED

Flash forward to the new competition, which was made international (3 of the 8 winners were Australian), and you can see both huge growth and a fascinating trend:

– 3,060 competitors (versus 1,819 in 2010)
– More than $12,000,000 worth of products sold (almost 4x the $3,543,191 in 2010)
– Closely related to the preceding point: Average sales per store were up 56% compared to 2010. Why? Shopify dramatically improved their educational and support efforts this time around.

The trend? Three of the winners–Coffee Joulies, Neu Year, and Opena Case–used Kickstarter to raised funds for manufacturing, and all of them exceeded their fundraising goals, some by miles. Joulies, for instance, aimed for $9,500 and raised more than $300,000! Kickstarter and similar tools were the focus of my recent post, “Beyond X PRIZE: The 10 Best Crowdsourcing Tools and Technologies.” It’s fun to see these services and technologies converging to create companies.

More on that later, but let’s look at some of what Shopify learned through this all. For instance: what type of lawyers do you need, if any? What are the pitfalls? I asked them to find out.

- What were your primary lessons learned in the first competition?

“We learned in the first contest that just announcing a contest and giving out prizes wasn’t good enough. This year, we used social media to help promote our new shops and to bring truly educational content to them. It paid dividends. Mentorship was a major focus of this contest (Tim Ferriss, Seth Godin, and Gary Vaynerchuk).”

- What type of lawyers or other help did you need, and how did you find them?

“The laws concerning contests are different in every country, even in different states. Contest rules are a legal contract between the contest sponsor and anyone who enters the contest, so they should be taken seriously. The potential downsides of mistakes include lawsuits and more.

We found our first lawyer by looking for thought leaders. We read articles written on contest law and contacted the authors who were lawyers. Since were on a budget, we looked for sole practitioners instead of big firms.

For a simple contest, you can go through a ‘Contest Fulfillment company’ that can use their lawyers to draft the rules, oversee the process, and “audit” everything to ensure the winners are not committing fraud or breaking the rules. If you’re sending materials to contestants (e.g. we sent books to everyone), such a company will also do the mailing, etc.”

- Above the prize amounts, what costs should start-ups expect to incur? What unexpected expenses did you guys experience?

“Legal expenses, especially when doing multiple countries, adds up really quickly. If you have all your details figured out before going to your lawyer to draft the rules, you save a lot of time, which equals money. Even a minor change costs a lot when it’s done by a $500/hour lawyer.

We offered a lot of travel prizes during this contest, so you have to estimate those costs carefully. This isn’t easy because you don’t know where your winners will be from and how much hotels and flights will cost. We also gave away thousands of books to people who entered the contest.

It turned out that these were much more expensive to ship than we had originally thought, especially to Australia. Next time, we would probably focus more on e-books and digital goods.”

[Notes from Tim: This is why specifying if you’ll accept contestants from outside of your own country is critical. Constantly ask yourself: “What could go wrong here? If I wanted to game this, how would I?” and run through a hypothetical sign-up in your mind. Where will users be confused, or ask “Now what?” For example, if you have a submission deadline, have you listed the time zone? What do you do if someone has a tech problem (server issue, WordPress issue, whatever) with submission outside of their control? Try and cover as many of the what-ifs as possible in your rules so people don’t get upset.]

“When it comes to prizes, money isn’t always the biggest motivator. Anyone can write a check. Look for prizes where perceived value is greater than actual cost. In our contest, we are gave away a dinner with Tim Ferriss, lunch with Seth Godin and a meeting with Gary Vaynerchuk. These are literally priceless things that people can’t get on their own.”

- Any other tips for people wanting to hold their own competitions? Warnings or otherwise?

“Know what your objective is. For us, it wasn’t primarily about getting media attention, for instance. That was a fantastic side-effect, for sure, but our main goal was to attract customers who wouldn’t have come to us otherwise.

Consistent support and info sharing is also critical. Just bribing people to do big things often isn’t enough. Building a community where people could share best practices is what made 2011 so much bigger than 2010.

If you’re offering a large prize, definitely consult a lawyer specializing in that area, and most big firms will have a few.”

Winning Competitions

Let’s look at this year’s winners, what they did right, and what they did wrong.

Grand Prize Winner: Coffee Joulies

How did you decide on your product? What ideas did you consider but
reject, and why?

Coffee Joulies was just one of an unending stream of ideas we would
toss back and forth over gchat while avoiding doing actual work at our
jobs. What was different this time is that we put our foot down and
said enough was enough. A Joulie is made of two parts: the shell and
the filling. It was the simplest idea we had ever come up with. We
decided it was time to step up and actually make this idea a reality.

There was no way we were going to create an entire business without
figuring out whether people would want the product first. We focused
on rapid prototyping for proof of concept and then manufacturing
alpha-stage Joulies ourselves to see if people would actually buy
them. The goal was to get Joulies into the hands of customers as fast
as possible and let them tell us whether or not they liked the
product, ignoring all the other flapping heads who love to shoot down
ideas to make themselves feel better.

We put up a website and offered Joulies for presale, and pretty much
nothing happened. How do you attract customers to buy a product that
has never existed before? We needed a way to tell the world about our
idea. Kickstarter was our soapbox. We launched Coffee Joulies on
Kickstarter during April of 2011 and ended up getting funded 3,230
percent over our goal from 4,818 backers in 57 countries. It was clear
that we had a hit product on our hands. After fulfilling our
Kickstarter orders we turned to Shopify to build Coffee Joulies into a
business.

What were some of the main tipping points (if any) or a-ha moments?
How did the tipping points happen?

The first tipping point for Coffee Joulies occurred on day two of our
Kickstarter campaign. We had emailed Uncrate, Gizmag, and Gizmodo with
a press release and high resolution images hoping one would pick up
our story. All three posted about us. Next on our list was TechCrunch,
but before we could email them we found out they’d already picked up
our story. We were viral.

The second tipping point came after Dave and I read “The Lean Startup”
by Eric Ries. We were on the verge of jumping into a number of large
batch processes, like an expensive website deployment and a $60,000
progressive die purchase. In the context of “minimum viable product”
(MVP) it became painfully obvious that these big, enticing projects
were not the way to go. Ever since then our focus has been on reducing
cycle time and closing the feedback loop. It has fundamentally changed
how we do business.

The third tipping point came as we wrapped up Kickstarter fulfillment
in November. With MVP on our minds we used a bone version of the
simplest Shopify template that was available to create our website. We
learned a lot as we released the Gift Pack at $100 and then the Set of
5 at $50, and we had it timed so well that we sold out of everything
at 9am on the last day that orders could be placed and still be
delivered in time for the holidays. What more could we want?

What were your biggest mistakes, or biggest wastes of time/money?

We underestimated the amount of time it would take to fulfill our
Kickstarter orders by about a factor of five. We spent a huge amount
of time in central New York solving manufacturing problems at the
factory. During that time we definitely could have spent more time
honing our marketing message and performing A/B testing while the only
thing we were selling was an opt-in to our email list.

We were extremely careful with our money from Kickstarter because we
knew it had to last until all of the orders were fulfilled. That said,
we were tempted on a number of occasions by big-ticket items like
expensive manufacturing equipment, apartments in San Francisco, and
marketing firms. Looking back now we dodged quite a few bullets. The
money we made selling on Shopify came in so fast that we really didn’t have time to blow it. The majority was reinvested to build up
inventory once we learned we had won the Build-a-Business competition.

Key manufacturing and marketing lessons learned?

Key manufacturing lessons: The simplest idea you have will still be
extremely difficult to manufacture, test, and deliver to the customer
in a timely manner. It will also cost more than you think.

Key marketing lesson: At some point the free PR will dry up. Then what?

If you were to do it all over again, what would you do differently?

It’s hard to imagine doing this any differently than we did. We
approached all of our hurdles as learning opportunities and took them
one step at a time so we could find the easiest/fastest way to succeed
and then move on. The only big decision that could have really
changed things is if we had taken on an investor towards the end of
our Kickstarter campaign. There were plenty of times when we wished we
had extra capital, experience and manpower, but who knows where we
would be now if we had, for better or worse. The grass is always
greener.

What’s next?

Moving beyond the internet. Coffee Joulies look great online, but
really are amazing when you hold them in your hand. Also, plenty of
other drinks could use temperature stabilization…

Home Category Winner: Neu Year

How did you decide on your product? What ideas did you consider but
reject, and why?

I’m a web designer, caught-up in the web-startup gold-rush. So, naturally, I have several web startup ideas. But, since this is my first startup attempt, I wanted to try something easy – something easy to make, inexpensive to test and simple for customers to accept or reject. So I went with the calendar: very easy and cheap to make prototypes, test them, easy to execute, setup Shopify, etc.

Also, with the recent buzz around productivity and productivity products, I thought a new productivity product would have a better shot. And seeing the success of Moleskine and Behance (essentially cooler tools for productivity) – I thought a cooler calendar would have some legs. Finally, since there’s not much competition in the calendar market, and I wanted one myself, I saw an opportunity in the market, and took it.

I have 49 other ideas that I rejected for my first venture because, although they are more sexy and potentially have broader appeal, they would require a lot of effort and cash to startup, and they are in crowded markets. The calendar seemed like the easiest, most simple opportunity for me grasp.

What were some of the main tipping points (if any) or a-ha moments?
How did the tipping points happen?

Since I have no money and I was wasn’t sure if this would work, I decided to do a test (like you suggested) on Kickstarter. We created a campaign to raise $5,000 – just enough to do our first print-run of 1,000 calendars and ship 200 of them to our backers. We were so excited and thought we had the perfect price point to raise at least $10,000. We BARELY made our goal of $5K. This was super discouraging. My mom gave a HUGE donation early on, without which we would not have made it, and that would have been it.

Fortunately, we made it. That was a small tipping point. The big tipping point was when we got on Fab.com. Before Fab, we had been selling for about a month online. In that time we had only sold about 100. It was slow.

When I sent a calendar to Fab it took them a little while to get back to me, but they liked it and wanted to do a run. I had no idea what to expect. I thought – “Ok, maybe we’ll sell 100, or 200 at the MOST.” 3 hours after we started the sale, we had nearly sold-out 400 calendars! They called me excited and asked for 400 more! This was one of the best feelings of my life – this established company was excited about the performance of my product on their network! Wow. It was then that I realized our product was viable (niche, yes, but viable).

Let me also say that it seems impossible that the calendar has sold as well as it has (not that it’s been overly amazing). I honestly believe that Jesus, who is in charge everything, has allowed it to work-out, and I’m thankful for that!

What were your biggest mistakes, or biggest wastes of time/money?

We are new to this, so we made several mistakes:

1. I just entered into an agreement with Groupon. The margins are very tight. From the way we were talking I was virtually promised to sell 10,000. I got caught up in the frenzy of it and made a deal with little to no margin on 5,000 and slightly better on 10,000. I’m looking at our sale right now and we’ve sold 1,700 :( Looks like we’re going to lose money, potentially thousands of dollars, if we don’t sell a lot in the next 24 hours.

2. We didn’t test our product with consumers enough, or at all. If we had, we would have learned what we learned shortly after launching: people want more than 1 box for the weekend. See, our calendar was aimed at businesses (I guess?) that would focus on the work week, so we put Saturday and Sunday in one box. I thought we were so innovative. Well, I’ve gotten over 100 emails of people wanting the weekend to be split out. And they want dry erase. We didn’t think of either of those. And we’ve probably lost at least 500 sales because of it. We should have really tested this with consumers before hand.

3. Didn’t research how to get into retail outlets. I’m only now learning how that is done and it seems we’re too late to get into retail outlets for 2013 (not 100% on this, but it seems like it).

4. Didn’t do enough research on printers, shipping, etc. We could be getting better pricing on stuff, I’m only now finding this out.

5. Didn’t market the product well – don’t really know how to do that. Paid for too much advertising that never turned-in to sales. And didn’t beat the pavement enough to get free PR on blogs.

Key manufacturing and marketing lessons learned?
Study the crap out of your manufacturing process, so you can find the cheapest way to do it and make sure the quality is good. Get samples. Understand what you’re doing. Plan better, so you can make good estimates and make more at one time. Do one run of 3,000 instead of 3 runs of 1,000 (duh!).

Marketing is tough! Be careful how you spend money. The best marketing is free word of mouth, and for us, relevant blogs. Like Gary Vaynerchuck has said, you have to crush it, find EVERY relevant blog, comment on it, read the posts, find the players on Facebook, email them, go, go, go, email, email, email, comment, comment, comment. Make friends. This is tough work. But it pays off big.

Turns out, one of our best sources of click throughs to our site has been Pinterest.com. Use google analytics, analyze that junk, figure-out where sales are coming from, who your target market is, and reach those folks. This is hard to do, and I suck at it, but our sales have been better when we do this.

Do a contest. One our most successful campaigns was a contest where you were entered to win a $20 amazon gift card, if you tweeted about the contest. We saw a large jump in sales around this time. It helped a tiny, nobody company like us get the jump in exposure we needed.

If you were to do it all over again, what would you do differently?

I would do more research on our product – making sure we had tested all the features with real people (the problem with this is we had lots of skeptics early on, so you can’t always listen to your critics – it’s a balance I guess). I would pound the pavement a lot harder before the Kickstarter campaign to try and drum-up support ahead of time – asking people to blog at specific times during our campaign.

I would have (and I should be) continually contacting influencers (bloggers, tweeters, media outlets) and sharing our product with them – to try and gain free “word of mouth” advertising – which seems to be our most cost effective mode of advertising (but I’m no expert).

What’s next?

We will be making a school year version soon. And we’re making a larger version for teams. Perhaps even making specific versions for Moms, Teachers, Churches, etc. I’ve got tons of other ideas (my enemy, I know). I’m inspired by Studio Neat’s products, and I have an idea for a simple tech accessory that everyone will want next year.

Other Category Winner: Opena

How did you decide on your product? What ideas did you consider but
reject, and why?

Because of our backgrounds in design and tool making we knew we had the skills to design a product but we didn’t have the capital so we turned to crowd funding to help raise the funds need to produce it. Many late nights trawling successful kickstarter projects led us to the following:

- Impulsive price point of around $50, people have less objections to buying products around this price point, but it also meant that our particular product could be manufactured to a very high quality due to the low manufacturing costs.

- Had to be a suitable size for postage – after all we were going to be shipping these things world wide so we don’t want something the size and weight of a house brick!

- Wanted to piggyback off the back of another popular trend/product.

- Needed to fill a niche that had little competition.

- Had to have a unique feature that would make our product stand out from the crowd.

- Have a decent margin to allow for marketing, advertising, affiliates, wholesale, and promotion etc.

We rejected a few other ideas mainly because they were too complex, too expensive to manufacture and did not have the broad appeal of the Opena Case.

What were some of the main tipping points (if any) or a-ha moments?
How did the tipping points happen?

There we’re quite a few but three in particular stand out. The first was when we showed the final prototypes to people for feedback. When we asked for them to hand it back they asked if we wanted to sell the prototypes. When we explained that we couldn’t sell the prototypes they became very disappointed and were reluctant to hand them back, so right then we knew we had a product people wanted. The second was when we put the idea on Kickstarter and realized that lots of people loved the idea and we’re willing to put money towards it to make it happen. Nothing better than having your idea validated by people voting with their wallets. The third was when Ashton Kutcher tweeted about it to his 7 million followers!

What were your biggest mistakes, or biggest wastes of time/money?

Our biggest mistake was not having enough faith in our ideas from the beginning. We should have launched our own product years before we actually did it, although it would have been much harder without awesome businesses like Shopify and Kickstarter!!

Key manufacturing and marketing lessons learned?

Get your product right before you ship! Our original design has some flaws that we overlooked during prototyping. This costs us time and money as we had to modify the production tooling and change the design before we could start mass production and fulfilling orders.

Things always take longer than you have been quoted…always!!

Don’t underestimate the importance of packaging! Our original packaging was designed to keep shipping costs low, however, retails stores thought it looked cheap. This effected the initial uptake into retail stores but once we updated the packaging to suit the retail environment the stores and distributors started placing orders.

If you were to do it all over again, what would you do differently?

Jump in earlier, the only thing from stopping you from doing it is YOU. Get feedback from as many people as possible and let them figure out what you have overlooked. Don’t be afraid to take pre-orders but make sure you have your product ready to ship when the Ashton Kutcher starts tweeting about it!

What’s next?

We’ve formed a company (annexproducts.com) to allow us to continue to produce awesome innovative products. We’ve signed up a global distribution partner and we’re just about to hit the go button on production of our second product the Quad Lock Mounting System which is a revolutionary case based mounting system designed for the iPhone 4/4S. Once again we validated the idea on Kickstarter and using social media and we’re now taking pre-orders at www.quadlockcase.com which will be shipping in March.

Apparel Category Winner: FlockStocks

How did you decide on your product? What ideas did you consider but reject, and why?

I read the 4-Hour Workweek and carefully followed the steps. In the book it mentions using the Adwords Keywords Tool to find opportunities in your area of knowledge. I already had some understanding in the beauty section and so whilst searching in that general area I uncovered the rising trend of Feather Hair Extensions. The competition on that keyword was low and the global monthly searches were pretty high. I decided to test the idea. I set up a testing website using Weebly and made 11 “sales” in four hours! It proved it was a winner before I had invested any money, which was essential to me as I only had about $3,000 in my account at the time.

Some other ideas I looked into were pancake pans, bongs and tobacco pipes, nylon stockings and generators. I rejected each one after Adwords testing with test websites. None of them sold the way I’d liked and none of them were really areas I knew anything about. Although I still think the generators have potential I don’t like the idea of posting and storing heavy, bulky items.

What were some of the main tipping points (if any) or a-ha moments?
How did the tipping points happen?

My business was successful very quickly. It was due to the fact that I had no competitors on Adwords and as a result I got a big chunk of the marketshare just by being there and in stock. Competitors were finding it hard to find supply and all I had to do was be visible and I made sales. So the tipping point would only be marked at the point I came into supply and posted my Adwords ad.

What were your biggest mistakes, or biggest wastes of time/money?

The mistakes I have made I am still making! I try to employ the 80/20 principle but have been slow to apply it to my customer base. I have managed to secure some good distributors now but regret I didn’t start sooner. I’ve probably wasted a lot of money on using Adwords incorrectly too. But I’ve kept it pretty lean in most aspects, especially in terms of time. We spent 3 of the past 9 months in business on a mini retirement in Thailand. The book really taught me to trust people to do their jobs correctly. It was a great freedom. I probably could have stayed home to run the business and make it bigger and better over that period, but I was after the freedom at the time as we’d had a difficult couple of years.

Key manufacturing and marketing lessons learned?

Good blogging drove me lots of traffic for free. Certain celebrities were wearing feathers in their hair, so I blogged about them and it drove traffic to my site for months. Celebrity endorsements for products like mine are an amazing way to create interest. Somehow I got on a mailing list for a PR company that organizes celebrity events and it really opened my eyes to how it works and how little it can cost. I nearly put my feathers in the gift bags at the Golden Globes this year.

In regards to manufacturing, we didn’t really have much to do, more like plucking and packaging. This was about finding people I trusted and creating clear objectives, roles and standards. I found someone I trusted who understood what I wanted, then delegated, so all I did was the orders and the ordering.

If you were to do it all over again, what would you do differently?

I would secure distributors earlier on.

What’s next?

We are working to launch our new range of human hair extensions. We have created a grading system that makes it easy for the consumer to identify what standard of hair they are buying. The brand is called Lockstocks and will specialize in selling high quality human hair extensions to salons.

We also have a passion project in the pipeline, where we hope to help people recover from depression without medication. It is based on my partner Tim Butterfield’s research. We have written an eBook and are currently learning how to promote it.

Art Category Winner: Tattly

How did you decide on your product? What ideas did you consider but
reject, and why?

I had the idea for Tattly one day in June of 2011 when I applied yet another hideous, badly designed, cheap temporary tattoo on my daughters arm. I simply told myself: “I can continue complaining about this or I can do something about it!” And I did. I took matters in my own hands, reached out to some of my wonderful designer friends to see if they’d be interested in designing tattoos. I had no idea but I opened floodgates. They all said yes and within hours I had first mockups in my inbox. I designed the site, built it and we launched mid July. The internets went crazy and on the second day we even got a call from a very prestigious store in London that asked us for a Wholesale catalog. Little did they know we *just* launched our site. It’s been quite a ride ever since.

What were some of the main tipping points (if any) or a-ha moments?
How did the tipping points happen?

Interestingly enough the tipping point was right during the first few days. It was obvious right off the bat, that the world was, in some sense, waiting for designy temporary tattoos. The excitement for Tattly seems unstoppable.

What were your biggest mistakes, or biggest wastes of time/money?

We haven’t had time to experiment much up until now, so no big mistakes come to mind. I am sure we will have plenty ahead of us as we grow the business. I feel like the hardest part is right ahead of us. We are only 7 months old and we now have to really figure out how to scale.

Key manufacturing and marketing lessons learned?

Find a manufacturer you love and that is pleasant to work with.

Make sure you have enough resources to offer immediate and personable customer support.

People *love* receiving packages that have a personal touch. We put real (and cool) stamps on our mailings and people go nuts over it, which often ends up in a tweet of the stamps.

Put some love into the design of the invoice, these things don’t go unnoticed.

Be prepared to be ripped off; protect your intellectual property from the start.

It’s never too late to reinvent an existing product.

If you were to do it all over again, what would you do differently?

I would (mentally) prepare myself for success. I started this project more or less as a joke with a side project mentality. While there is nothing wrong with that, I wish I would have built the website so it would scale better so I didn’t have to completely redesign and rebuild the site from the ground up 4 months later. Lesson learned.

What’s next?

Growing Tattly and getting it into lots of designy stores, all around the globe.

Food and Drink Category Winner: Simply Hops

How did you decide on your product? What ideas did you consider but
reject, and why?

Simply Hops parent company has been supplying major brewers in the UK with Hops for many years. We were aware of the growing supply of craft beers. That is beers brewed on a small scale, generally by small organisations. We analysed the market data available from the Society of Independent Brewers (UK). From this we made estimates of the likely demand for Hops. It was apparent that each customer (potentially over 800 in the UK alone) would take relatively small volumes of hops, and we judged that these would not be as price sensitive as major brewers. We investigated the offer from our competition, and although many customers seemed satisfied, they were looking for alternatives. Our competitors were attempting to service the market in the conventional way, i.e. sales people, phones and bespoke arrangements for delivery. We reasoned that a properly run e-business, could offer improved service (next day delivery) and significantly lower transaction costs. There is keen interest in exotic hop varieties which impart unique flavours to beer. We judged that our links through parent companies and associates would give us a competitive edge in sourcing these varieties. We considered entering this market in a conventional way, but rejected it in view of high costs and lack of novelty compared to the competition.

What were some of the main tipping points (if any) or a-ha moments?
How did the tipping points happen?

We launched the company with a conventional marketing event and advertising and started to get some initial orders. As part of this process we spent time with potential customers and it soon became apparent that most are avid networkers and users of Facebook and Twitter. We decided to explore the use of these media but to respect their social status and avoid a “hard sell”. We just advise of significant events. A definite a-ha moment was seeing how quickly our customers responded and how quickly our number of followers grew. In one case, we announced on Twitter that a particular American variety of hop was now available. Within 2 minutes, we had our first order! The other key learning point was to understand how our customers plan. Sometimes the brewery owner is also the accountant, and head brewer and sales person. They are just busy. If they decide that next week they would like to brew a particular recipe and they can then go online and order what they need then convenience is a big benefit for them. We had judged that having more specialised varieties would be attractive to our customers. We were able to introduce these fully in January 2012 and this led directly to more than doubling our monthly turnover.

Following our launch event, we reviewed how we should get more information to our customers. We concluded that meeting with brewers during normal working hours would not work. Who would brew the beer if the head brewer was in a meeting! So instead we organised an evening session with light refreshments. We are also seeing the benefits of an e-model. Some of our customers make good use of the fact that they can order time of day.

We also learned that providing an efficient phone service was really important. It’s surprising just how many people say that they can collect the goods to avoid carriage charges when they are located hundreds of miles away. A pro-active call from our customer sales manager has led to some very positive feedback. Also in the event of a glitch (usually with the freight side) we are usually able to fix problems very quickly.

Through Shopify, we were also able to see where are main referrals were coming from. We learned that inserting a click through banner on a home brewing forum really accelerated the process.

What were your biggest mistakes, or biggest wastes of time/money?

Early on in the life of the business we received enquiries from customers who did not feel that they should pay by credit card. We accommodated this initially, but this led to some complications with stock management and has now been discontinued.

Key manufacturing and marketing lessons learned?

It has taken us some iterations to get our pricing policy sorted. The initial set-up part of the configuration would have resulted in Simply Hops running a manufacturing operation. We quickly realised that this made the model overly complicated and stuck to our original intent to trade finished packed goods only.

If you were to do it all over again, what would you do differently?

We would spend more time up front defining our sales order/fulfillment process and clearly articulating who is responsible for what. This would save a lot of wasted effort and confusion. We would also think more deeply about building our social media presence, and presence in industry forums and relevant areas.

What’s next?

A few ideas that we want to keep from the competition! We have been successful in sourcing a number of really interesting new and old varieties of Hops. Some will be known to some brewers and some are completely new and “straight out of the breeding programmes”. We plan to introduce improved packaging to make using our hops much easier and improve availability in smaller pack sizes.

Canadian Winner: Clearpath Robotics

How did you decide on your product? What ideas did you consider but
reject, and why?

Clearpath Robotics started in a university robotics lab. Having experienced huge frustrations ourselves, we knew that researchers and students needed a better way to learn and build robots… So we spun out a company and we set out to solve this problem. There were a few other ideas on the table, but research and education seemed like the perfect starting point for us – it just fit.

We knew that our market needed a powerful low-cost robot. Our first attempts resulted in a great robots that customers loved, but at $5000, they were too expensive for most schools. We refined our designs and got our price down to $3500. Better, but not still not good enough and it was really hard for us to get the price down further.

To keep our costs low, we experimented heavily with open source. In 2010, we began working closely with a really innovative open source robotics company in Menlo Park, Willow Garage. It was started in 2006 by Scott Hassan one of Google’s first engineers. They have developed the world’s best operating system for robots and it is open source (Think of it as the Linux of the robotics world). We partnered with them to launch Turtlebot in the summer of 2011. The Turtlebot is the world’s most affordable professional robotics development tool.

What were some of the main tipping points (if any) or a-ha moments?
How did the tipping points happen?

The biggest tipping point for Turtlebot was making the decision to sell it online. This allowed us to really cut down our customer acquisition cost and we pass these savings on directly to our customers.

What were your biggest mistakes, or biggest wastes of time/money?

We make lots of mistakes. It is very important to us that we make mistakes. It keeps us innovative, it keeps us competitive. One of our most important mantras is “Fail Fast, Fail Cheap, Fail Often”. One of our investors taught us this early on and we live by it. The single biggest “lesson learned” so far is the importance of “slow to hire, quick to fire”.

Key manufacturing and marketing lessons learned?

Instead of spending a ton on traditional marketing, we invest those dollars into proactive customer service and back into development of rock-solid products. It’s all about turning customers into evangelists by delivering a remarkable customer experience. Tons of companies have figured this model out (i.e. Zappos), but it’s pretty rare in our industry. It’s working – our best marketing by far is word-of-mouth.

Manufacturing is so important for us. We spend a lot of time iterating our designs and working with our suppliers to optimize manufacturing process, product reliability and inventory management. I think it is important to have as small a list of trusted and proven suppliers as possible. The bigger the list becomes the more potential sources of error.

If you were to do it all over again, what would you do differently?

I don’t think we’ve done anything regrettable. Sure, we’ve made mistakes – everyone does. We learn from them and become better because of them. Our business is stronger today because of them. It all goes back to our “Fail Fast, Fail Cheap, Fail Often” mantra.

What’s next?

We see the Turtlebot as the very first “personal computers” of the robotics industry. The Turtlebot is the Apple II of the personal robotics industry. We want to make Turtlebot accessible and attractive to a much larger audience. Much like the first PCs, the Turtlebot is only really usable by programmers, hackers and the tech-savvy hobbyist communities. The next big thing for Turtlebot is figure out how to make it easier to use for non-programmers and also to make it even more affordable. Another big tipping point will be the creation of a “killer app” – an application to make Turtlebot highly valuable to the masses. In the mid-1980s, Lotus 123 was the “killer app” that contributed significantly to the success of the PC in the business world. Turtlebot needs its Lotus 123 equivalent. The open source community is working on ths as we speak and we’re working on a few “killer apps” of our own. We’re laying the foundation. Now it’s only a matter of time until something big happens.

Comment Rules: Remember what Fonzie was like? Cool. That’s how we’re gonna be — cool. Critical is fine, but if you’re rude, we’ll delete your stuff. Please do not put your URL in the comment text and please use your PERSONAL name or initials and not your business name, as the latter comes off like spam. Have fun and thanks for adding to the conversation! (Thanks to Brian Oberkirch for the inspiration)

We are planning on doing some Giveaways in April. The statistics you gave are awesome, and show how a contest can literally change a company. The marketing up to the Giveaway can make or break it.

The planning must be exceptional. I believe that people shouldn’t be so set on a certain type of giveaway. There should be brainstorming sessions up to the giveaway, so the best possible option is created.

What are your thoughts on money giveaways vs. product/service giveaways?

It is awesome to see the power of a well designed and well promoted contest in promoting an awesome product. As well as motivating a bunch of entrepreneurs to go for it. Talk about win-win.

I think it is also a testament to the power of taste makers and influencers. Tim, you did a great job in promoting the contest and your blog has the perfect audience for a contest like this.

It is also interesting to see how many of the winners got started on Kickstarter. I think it is a much cooler way to test out the viability of an idea than just putting down a landing page and testing out ad words. Of course each strategy has its time and place.

Tim, I wonder if there are more contests like this that you could promote that would encourage other types of muse businesses. I love what you are doing with Shopify and Michael Ellsberg’s contest that you promoted. Any other ideas for contests that you could promote?

Tim, absolutely love these start-up round up posts that you do. Each and every one of these entrepreneurs is an inspiration, and all of these products are just so great. Who would’ve guessed a bottle opening iphone case could start a great company? Online hops marketplace, awesome.

But what I love most of all are the Joulies. As a Barista I’m all about innovation in the world of coffee, it’s a huge market that is only growing. Joulies look wonderful, I’d totally serve them in my cafe. Could someone invent a disposable option for takeaway coffee? Now that would be good!

Hey Tim, I actually just now put the finishing touches on my first real “muse”, and came to your website looking at past case studies. It goes to show you, 4HWW has reached so many people, that at any given time, someone is launching a muse! Love 4HB, please don’t stop writing 4H books, can’t wait to read 4 Hour Chef. Also please look for my upcoming blog post at Seeking Alpha on your portfolio company Zynga. You have inspired my life in so many different ways, but just the inspiration to look at things and isolating what’s important would have been more than enough.

Very inspiring. I love Shopify for their ingenuity and how they promote building startups fast and in an efficient way. Creating and submitting templates to them is on my to-do list, would love to contribute to the community. Awesome muzes listed in this post also, love to see what others are doing.

Hi Tim,
I wanted to say thanks for everything. Everything I try to put down in this comment box seems trite and hollow – how do you thank somebody for changing their life so dramatically? Anyway, however you say it, consider it said. Thank you Tim Ferriss, for changing everything.
Sophie

Some of the winners prove that you don´t need very specialsed skills, big budget and big team to create a successful business and I think it´s the biggest take away. You need an open mind and drive to execute! In many cases that´s it.

You asked to point out little typos:
In the – Above the prize amounts, what costs should start-ups expect to incur? What unexpected expenses did you guys experience? – paragraph you wrote
“we are gave away a dinner with Tim Ferriss, ”